State of the ARM Industry: Where We Are, and Where We’re Going

This article was written by Kaulkin Ginsberg Company to describe the state of the ARM industry in 2020, and was originally published by the Southwest Collectors Association.

2020 was a uniquely challenging year for everyone, including those in the accounts receivable management (ARM) industry. In March, the novel coronavirus (COVID-19) hit the United States and led to an onslaught of rules and guidance imposed by government authorities on both businesses and individuals to slow its spread. Large gatherings were banned. Indoor dining was suspended. People were essentially confined to their own homes while the experts worked to contain the virus.

Industries like hospitality, food services, and airlines suffered crippling shocks as safety ordinances halted business operations and consumer demand dried up.[1] The economy, which had been running relatively strong before that point, suddenly slipped into recession, with the headline unemployment rate hitting the highest it had been since the Great Depression at 14.8%.[2] While the economic situation has improved somewhat since then thanks a combination of government stimulus and businesses adapting to the present circumstances, as of this piece’s writing, unemployment remains high, consumer spending continues to be muted, and many states and municipalities still maintain shutdown restrictions in some form.

ARM companies faced their own set of challenges in 2020. The industry was coming off of a stellar 2019; according to Census Bureau estimates, collection agencies generated roughly $16.3 billion in revenue, an increase of 6.2% over the previous year’s total.[3] 2020 was expected to be just as favorable, if not more so. However, COVID-19 threatened to disrupt those expectations. With physical offices shutting down across the country, ARM firms were forced to quickly adopt work-from-home measures – on a scale unprecedented in the history of the industry – despite various technological obstacles and unclear legal ramifications. Furthermore, certain creditor clients, particularly in market segments like healthcare, pulled back their outsourced collection operations due to the uncertainty generated by the virus in the early stages of the pandemic.

Despite the many hurdles standing in its way, the ARM industry managed to ultimately find success. Firstly, the vast majority of ARM companies managed to efficiently implement work-from-home strategies for their staff when needed, even though they had very little experience with them beforehand. In fact, the increased flexibility and productivity they have given employees may induce some firms to incorporate it on a permanent basis once the pandemic ends.

Secondly, though placements were indeed disrupted by pandemic-related uncertainties, many collectors found that their recovery outcomes improved over the course of the year. This seems to have been primarily driven by consumers choosing of their own accord to pay down outstanding debts using the federal stimulus money distributed through the CARES Act. The federal boost to unemployment benefits most likely also played a role in helping those who had lost their job keep on top of paying what they owed.

Figure 1. total revenue generated by collection agencies[4]

As such, the ARM industry is positioned to emerge from the COVID-19 pandemic not only relatively unscathed but stronger than before. Figure 1 depicts aggregate revenue generated by collection agencies from 2000 to 2019, as well as revenues projected by Kaulkin Ginsberg out to 2024. Kaulkin Ginsberg estimates that in 2020, collectors recorded around $16.7 billion in revenue, a 2.8% increase from the previous year.

While 2020 was defined by overcoming challenges, 2021 has potential to be a year filled with opportunity for ARM companies. First, there seems to be a light at the end of the tunnel regarding the pandemic. Vaccine rollouts have begun, and according to Dr. Anthony Fauci – the director of the National Institute of Allergy and Infectious Diseases – the nation could approach “some degree of normality” if they go well.[5]

The lifting of restrictions, as well as the alleviation of fears of infection, will unlock a significant amount of consumer demand that is currently being smothered by the pandemic. Exuberant spending on things like eating out at restaurants, sporting events, and travel should facilitate the growth of debt in key asset classes like credit cards. In the healthcare sector, patients will begin to go through with procedures and care they had previously forgone due to financial and safety concerns, thereby boosting healthcare spending and, potentially, bad debts. These trends should drive business opportunities for ARM companies in the second half of 2021 and beyond.

As long as the United States economy is capitalistic, there will always be a need for debt and the companies that service it. The COVID-19 pandemic has challenged collectors, but the industry is showing its resiliency and it will certainly overcome.

Works Cited

[1] Hiner, Jacqueline. Accommodation and Food Services in the US Industry Report. IBISWorld, Nov. 2020.

[2] Data retrieved from Bureau of Labor Statistics.

[3] Data retrieved from Census Bureau’s Service Annual Survey.

[4] Historical data retrieved from Census Bureau’s Service Annual Survey. Projected data based on regression analysis by Kaulkin Ginsberg.

[5] Korab, Alek. “Dr. Fauci Says When We’ll Get Back to Normal.” Yahoo!, Jan. 20 2021.